Financial Services Regulation and Compliance - Banking January 2023
Financial Services Regulation and Compliance - Banking January 2023
Minister for Finance announced the publication of a public consultation process on the transposition of the EU credit servicers’ and credit purchasers’ directive (the directive)
The purpose of the consultation process announced by the Minister for Finance, is to seek the views of the public on the discretions contained in the directive, so as to inform the Minister’s decisions in the context of transposing the directive.
The directive was agreed in 2021 with a transposition deadline of 29 December 2023. The purpose of the directive is to promote a secondary market for non-performing loans and provide a common framework for the sale and management of bank originated non-performing loans which are transferred or sold after 29 December 2023. It provides for a new EU wide authorisation and regulatory framework for credit servicers to be overseen by national competent authorities and will allows authorised entities to passport credit servicing activities across the EU.
The public consultation process will run until 8 March 2023.
Opening Statement by Gabriel Makhlouf, Governor of the Central Bank of Ireland at the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach
On 25 January 2023, Governor of the Central Bank of Ireland (CBI), Gabriel Makhlouf delivered an opening statement at the Joint Committee on Finance, Public Expenditure and Reform and Taoiseach.
Governor Makhlouf looked back on 2022 in his opening statement, and noted that the factors dominating economic activity throughout the year included - Russia’s unjustified war against Ukraine and its people; the energy crisis; rising inflation; the state of labour markets and supply chains; and the ongoing impact of China’s approach to managing the pandemic.
Governor Makhlouf stated that a return to price stability (a rate of inflation in-line with the 2% target over the medium term), is necessary for a stable economic environment to support long-term growth.
He also outlined the CBI's regulatory priorities, noting that banks and other lenders, in particular have a key to play in supporting the economy and users of financial services. This includes by:
providing the lending and deposit services required to support a well-functioning economy
supporting customers who may be experiencing difficulties in light of the changed macro-economic environment, including customers in or facing arrears on existing loans
developing and implementing strategies which preserve long terms sustainability and firms' capacity to continue to support the economy now and into the future
The Governor also touched on the retail bank consolidation and interest rates in the Irish mortgage market as items which the CBI continues to work on as part of its supervisory priorities.
On 24 January 2023, the European Central Bank (ECB) published its first set of climate-related statistical indicators to better assess the impact of climate-related financial risks and to monitor the development of sustainable and green finance.
The new indicators are either experimental or analytical. The purpose of the indicators are to start a broader conversation within the statistical and research community and with other key stakeholders on how to better capture data on climate-related risks and the green transition.
The indicators cover three areas:
Experimental indicators on sustainable finance that provide an overview of debt instruments labelled as “green”, “social”, “sustainability” or “sustainability-linked” by the issuer that are issued or held in the euro area. The data shows that the volume of sustainable and green bonds has more than doubled over the last two years and grew much faster than the overall euro area bond market. Besides boosting transparency, these indicators also help track progress on the transition to a net-zero economy.
Analytical indicators on carbon emissions financed by financial institutions provide information on the carbon intensity of the securities and loan portfolios of financial institutions, and on the financial sector’s exposure to counterparties with carbon-intensive business models. Preliminary results show that in the euro area, most of the emissions financed via equity or bonds are held by investment funds. However, the data suggest that the most carbon-intensive activities are financed via the banking sector, as the companies they finance produce relatively more emissions in their business operations to achieve a given level of revenue.
Analytical indicators on climate-related physical risks analyse the impact of natural hazards, such as floods, wildfires or storms, on the performance of loans, bonds and equities portfolios.
Annual quantitative report on minimum requirement for own funds and eligible liabilities
On 16 January 2023, the European Banking Authority (EBA) published its annual quantitative report on minimum requirement for own funds and eligible liabilities (MREL) with data as of December 2021. As of 31 December 2021, the EBA estimated that 70 banks reported an MREL shortfall of EUR €33bn out of a sample of 245. This is down by 42% compared to last years’ quantitative report on MREL on a comparable basis. The report shows progress in closing MREL shortfalls, albeit at a lower rate for smaller banks, and concludes that the impact of MREL on banks’ profitability is manageable, although varied across types of banks and Member States.
Report on liquidity measures
On 13 January 2023, the EBA published its report on liquidity measures, which monitors and evaluates the liquidity coverage requirements currently in place in the EU. The liquidity coverage ratio (LCR) declined to 166% in June 2022. The fall was due to an increase in outflows driven by higher interest rates and volatility which led to a decline in asset prices during the first half of the year. The evolution of banks’ LCR levels is particularly relevant given the current uncertain economic outlook with high levels of inflation and the process of normalisation of the monetary policy.
The report found EU banks hold materially lower liquidity buffers in foreign currencies, particularly the USD, which requires enhanced monitoring by banks and supervisors to avoid excessive vulnerability to disruptions in the foreign exchange markets. However, despite some reduction in the EU banks’ LCR levels, the LCR buffers remain significantly above the minimum requirement.
The process of normalisation of the liquidity-enhancing monetary policy measures started in 2022 and is expected to continue in the coming years. In particular, the bulk of the ECB’s targeted longer-term refinancing operations (TLTRO-3) will be maturing in 2023 and the run off of securities accumulated by EU central banks in the asset purchase programmes will continue with the effect of reducing liquidity in the EU financial system going forward.
EBA clarifies the status of several disclosure guidelines, and ensures continuous transparency of credit quality of exposures by all types of credit institutions
The EBA has provided clarity on the applicability of several EBA disclosure guidelines which are replaced totally or partially by the implementing technical standards (ITS) on Pillar 3 disclosures. As part of this effort, the EBA has repealed three guidelines that are replaced by that ITS and revised the scope of application of the guidelines on disclosure of non-performing and forborne exposures. The amending guidelines ensure the continuity of public disclosures on non-performing and forborne exposures by all credit institutions.
The EBA is repealing three guidelines that are no longer relevant, including:
guidelines on disclosure requirements under Part Eight of Regulation (EU) No 575/2013 (EBA/GL/2016/11)
guidelines on liquidity coverage ratio (LCR) disclosure to complement the disclosure of liquidity risk management (EBA/GL/2017/01)
guidelines on disclosure of encumbered and unencumbered assets (EBA/GL/2014/03).
The joint application of the amending guidelines and the ITS on Pillar 3 disclosures will ensure that all EU institutions will continue to disclose relevant information regarding non-performing and forborne exposure.
EBA issues opinion to the European Commission on the draft European Sustainability Reporting Standards
On 26 January 2023, the EBA published an opinion on the draft European Sustainability Reporting Standards (ESRS) developed by the European Financial Reporting Advisory Group (EFRAG). In the opinion, the EBA acknowledges that overall, the draft ESRS are consistent with international standards and any other relevant EU Regulation.
The EBA also welcomed the level of alignments with the Pillar 3 disclosures at this stage. It also noted a few items that should be further considered by the European Commission, including the timetable for the development of the sector-specific standards for credit institutions.
For more information on these topics please contact any member of A&L Goodbody's Financial Regulation team.